FSB Americas group discusses financial market developments and enhancing cross-border payments

8 December 2020

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Ref no: 54/2020

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Americas held a virtual meeting today to discuss global and regional macroeconomic and financial market developments. Members also exchanged views on spillovers from the policy responses to the March market turmoil and COVID-19 pandemic, and reiterated the importance of international cooperation to evaluate and coordinate the policy responses, including considerations for their future unwinding, once appropriate.

The group received an update on the FSB’s work programme, including planned deliverables to the Italian G20 Presidency. Key FSB deliverables next year include work on strengthening the resilience of non-bank financial intermediation, implementation of the roadmap to enhance cross-border payments, transition away from LIBOR, adequacy of central clearing financial resources for resolution and climate-related disclosures. RCG members explored ways to contribute to the workplan, in particular to the FSB’s roadmap on enhancing cross-border payments. The roadmap, which consists of 19 building blocks, provides a high-level plan, to make cross-border payments faster, cheaper, more transparent, and more inclusive.

The FSB workplan for next year will be published by January 2021.

Notes to editors

The FSB RCG for the Americas is co-chaired by Alejandro Díaz de León-Carrillo, Governor, Bank of Mexico and Cindy Scotland, Managing Director, Cayman Islands Monetary Authority. Membership includes financial authorities from Argentina, Bahamas, Barbados, Bermuda, Bolivia, Brazil, British Virgin Islands, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Guatemala, Honduras, Jamaica, Mexico, Panama, Paraguay, Peru, Trinidad and Tobago, the United States of America and Uruguay.

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability1. Typically, each Regional Consultative Group meets twice each year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve Board; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

  1. The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and sub-Saharan Africa. [←]

Supplemental note to External audits of banks – audit of expected credit loss

7 December 2020

View the Standard

The BCBS has issued this supplemental note to the Committee’s 2014 guidance, External audits of banks (2014 guidance) to contribute to the high-quality audit of banks. This note deals with the audit of the expected credit loss (ECL) accounting estimate within the overall financial statement audit. ECL frameworks bring significant change for banks and their external auditors. High-quality implementation and ongoing application requires considerable effort from all involved parties – management, audit committees and external auditors.

This supplemental note will help banks’ audit committees in their role of overseeing banks’ external audits (including the audit work on ECL), which is one of their key responsibilities. The note sets out the Committee’s expectations for the external auditor, alongside questions that an audit committee may ask the external auditor, and also elaborates on those expectations in the context of key components of ECL.

FSB Sub-Saharan Africa group discusses regional vulnerabilities and enhancing cross-border payments

3 December 2020

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Ref no: 53/2020

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Sub-Saharan Africa held a virtual meeting today to discuss recent macroeconomic and financial market developments, including medium- and long-term implications to regional financial stability arising from the COVID‑19 pandemic. Members reiterated the importance of international cooperation to evaluate and coordinate the policy responses to COVID-19, including their future unwinding.

The Group discussed the findings of the FSB reports published around the G20 Riyadh Summit, including the holistic review of the March market turmoil; implementation of financial benchmark reforms; climate-related financial stability risks; and the roadmap to enhance cross-border payments (Roadmap), including addressing regulatory and supervisory issues with respect to ‘global stablecoins’. Members in particular considered ways they could contribute to meeting the overall Roadmap goals. They explored types of capacity building that may be useful to help address challenges to implementing the roadmap.

Members were also briefed on the FSB’s workplan for 2021, including the FSB’s deliverables to the Italian G20 Presidency. The FSB workplan for next year will be published by January 2021.

Notes to editors

The FSB RCG for Sub-Saharan Africa is co-chaired by Lesetja Kganyago, Governor, South African Reserve Bank and Ernest Addison, Governor, Bank of Ghana. Membership includes financial authorities from Angola, Botswana, Ghana, Kenya, Mauritius, Namibia, Nigeria, South Africa, Tanzania, Uganda and Zambia as well as the Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC). Permanent observers include the Committee of Central Bank Governors of the Southern African Development Community, and the East African Community.

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.1 Typically, each Regional Consultative Group meets twice each year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

  1. The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and sub-Saharan Africa. [←]

IIF Webinar: Dietrich Domanski

1 December 2020

FSB Secretary General Dietrich Domanski speaks with the Institute of International Finance about the FSB’s recent reports sent to the G20, as well as recent FSB findings and recommendations on a wide range of issues including COVID-19 policy coordination, LIBOR reform, climate-related risks, ‘global stablecoins’, BigTech in EMDEs and outsourcing and third-party dependencies.

OTC Derivatives Market Reforms: 2020 Note on Implementation Progress

25 November 2020 | PDF full text (874 KB)

Overall progress in implementation of the agreed G20 reforms to over-the-counter (OTC) derivatives markets is well advanced, but there has been limited additional implementation of the reforms since October 2019.

  • Trade reporting: 23 out of 24 FSB member jurisdictions have comprehensive requirements in force, unchanged since the last progress report. Some jurisdictions report that they have expanded the scope of their trade reporting requirements, reviewed the efficiency of their reporting regime or removed barriers for data sharing.

  • Platform trading: Comprehensive platform trading requirements are in force in 13 jurisdictions, unchanged for the second consecutive year. One jurisdiction postponed to 2021 the adoption of final rules, originally planned to be completed during the first half of 2020.

  • Central clearing: 17 jurisdictions have in force comprehensive standards for mandatory central clearing requirements, unchanged since the last report, and one adopted comprehensive standards for determining when products should be centrally cleared, which has not yet come into force. Steps have been taken in many jurisdictions and at the international level to further strengthen the resilience of central counterparties (CCPs).

  • Margin requirements for non-centrally cleared derivatives (NCCDs): 16 jurisdictions have in force margin requirements for NCCDs, unchanged from the last progress report. All these have adopted the one-year extension agreed by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) for the final two implementation phases in light of COVID-19.

Capital requirements for NCCDs: Two jurisdictions adopted final capital requirements for NCCDs and one jurisdiction completed implementation since the transition period lapsed. Only eight FSB jurisdictions currently have comprehensive requirements in force.

The implications of climate change for financial stability

| PDF full text (1 MB)

Report discusses how climate risks might impact, or be amplified by, the financial system.

Building on the FSB Stocktake of financial authorities’ experience in including physical and transition climate risks as part of their financial stability monitoring, this report assesses the channels through which physical and transition risks could impact the financial system and how they might interact. Particular focus is on the potential amplification mechanisms and cross-border effects, and on the channels that could materialise in the short-to-medium term.

Current central estimates of the impact of physical risks on asset prices appear relatively contained but may be subject to considerable tail risk. The manifestation of physical risks could lead to a sharp fall in asset prices and increase in uncertainty. A disorderly transition to a low carbon economy could also have a destabilising effect on the financial system.

Climate-related risks – physical and transition risks – may also affect how the global financial system responds to shocks. They may give rise to abrupt increases in risk premia across a wide range of assets. This could alter asset price (co-)movement across sectors and jurisdictions; amplify credit, liquidity and counterparty risks; and challenge financial risk management in ways that are hard to predict. Such changes may weaken the effectiveness of some current approaches to risk diversification and management. This may in turn affect financial system resilience and lead to a self-reinforcing reduction in bank lending and insurance provision.

There are various actions that financial institutions can take – and are taking – to reduce or manage their exposure to climate-related risks. However, the efficacy of such actions taken by financial firms may also be hampered by a lack of data with which to assess clients’ exposures to climate-related risks, or the magnitude of climate-related effects. Robust risk management might be supported by initiatives to enhance information with which to assess climate-related risk.

The FSB will conduct further work to assess the availability of data through which climate-related risks to financial stability could be monitored, as well as any data gaps.

FSB examines financial stability implications of climate change

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Ref no: 52/2020

The Financial Stability Board (FSB) today published a report that examines the potential implications of climate change for financial stability. The report analyses how climate-related risks might be transmitted across, and might be amplified by, the financial system, including across borders. It also sets out next steps for the FSB’s work in this area.

Current central estimates of the impact of physical risks on asset prices appear relatively contained but may be subject to considerable tail risk. The manifestation of physical risks could lead to a sharp fall in asset prices and increase in uncertainty. A disorderly transition to a low carbon economy could also have a destabilising effect on the financial system.

Climate-related risks – physical and transition risks – may also affect how the global financial system responds to shocks. They may give rise to abrupt increases in risk premia across a wide range of assets. This could alter asset price (co-)movement across sectors and jurisdictions; amplify credit, liquidity and counterparty risks; and challenge financial risk management in ways that are hard to predict. Such changes may weaken the effectiveness of some current approaches to risk diversification and management. This may in turn affect financial system resilience and lead to a self-reinforcing reduction in bank lending and insurance provision.

The breadth and magnitude of climate-related risks might make these effects more pernicious than in the case of other economic risks. Moreover, the interaction of climate-related risks with other macroeconomic vulnerabilities could increase risks to financial stability. For instance, certain emerging market and developing economies that are particularly vulnerable to climate change are also dependent on cross-border bank lending.

There are various actions that financial institutions can take – and are taking – to reduce or manage their exposure to climate-related risks. However, the efficacy of such actions taken by financial firms may be hampered by a lack of data with which to assess clients’ exposures to climate-related risks, or the magnitude of climate-related effects. Robust risk management might be supported by initiatives to enhance information with which to assess climate-related risk.

The FSB will conduct further work to assess the availability of data through which climate-related risks to financial stability could be monitored, as well as any data gaps.

Notes to editors

The 14 October 2020 communique of the G20 Finance Ministers and Central Bank Governors notes that the FSB is continuing to examine the financial stability implications of climate change.

On 22 July 2020, the FSB published a Stocktake of financial authorities’ experience in including physical and transition climate risks as part of their financial stability monitoring.

In April 2015 the G20 asked the FSB to consider climate risk and in December 2015 the FSB launched the industry-led Task Force on Climate-related Financial Disclosures (TCFD) to develop recommendations on climate-related financial disclosures. The TCFD published its final recommendations in June 2017 and its latest status reporton 29 October 2020.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Reforming Major Interest Rate Benchmarks: 2020 Progress report

20 November 2020 | PDF full text (841 KB)

Work to transition away from LIBOR needs to accelerate in early 2021.

This report covers reforms to a number of benchmarks, including the key London Inter-bank Offered Rate (LIBOR) benchmark.

During 2020, the disruption to global financial markets associated with the COVID-19 pandemic has further highlighted the fundamental weaknesses in LIBOR and reinforced the critical importance of the FSB’s efforts to reform the production and use of global interest rate benchmarks. While some aspects of firms’ transition plans have been temporarily disrupted or delayed, others have been able to continue, including the release by ISDA of new fallback language for derivative contracts and the publication of market conventions for loans and other products based on risk-free rates in a number of jurisdictions.

Given the extent of risks associated with a failure to prepare adequately for the transition, the onus of action is on firms. Global and national financial regulators will be monitoring progress closely. In October the FSB published a global transition roadmap for LIBOR. The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.

With only one year left, all market participants – both financial and non-financial firms across the globe – must now ensure they follow the necessary steps to avoid disruption to the performance of their contracts. For transition to occur on time, market participants will need to cease use of LIBOR as a benchmark in all new activity across global markets as soon as possible and this needs to be a key priority for the months ahead.

There have been a number of proposals by authorities and national working groups including in the US, UK and EU to help manage an orderly wind-down of LIBOR and, in particular, provide a legislative solution for tough legacy contracts. However, market participants should continue to progress their transition efforts and plans proactively, particularly through active conversion and the insertion of robust and workable fallbacks where feasible.

Consistent with the above and emphasising the importance of action on this timetable, the administrator of LIBOR, ICE Benchmark Administration (IBA), on 18 November announced that it will consult on its intention that the euro, sterling, Swiss franc and yen LIBOR panels would cease at end-2021. Announcements in relation to US dollar LIBOR are expected to follow. In its role as regulator of IBA, the UK Financial Conduct Authority (FCA) has also set out its potential approach for use of new powers under proposed UK legislation to ensure an orderly wind down of LIBOR and published consultations on its proposed policies for using them.

FSB Official Sector Steering Group (OSSG) Co-Chairs Andrew Bailey and John C. Williams made the following statement: “The message that all market participants should take from this Report and this week’s announcements from the IBA and FCA is that we need to be prepared for the end of LIBOR. Everyone needs to be ready.

We thank all of our colleagues across the OSSG jurisdictions for their support in producing this report, and their commitment to redouble efforts on this issue next year as we approach the culmination of many years of hard work to strengthen the global financial system.”

FSB sets out progress on interest rate benchmark reform

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Ref no: 51/2020

The Financial Stability Board (FSB) today published a progress report on implementation of reforms to major interest rate benchmarks.

 The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.

With only one year left, all market participants – both financial and non-financial firms across the globe – must now ensure they follow the necessary steps to avoid disruption to the performance of their contracts. For transition to occur on time, market participants will need to cease use of LIBOR as a benchmark in all new activity across global markets as soon as possible and this needs to be a key priority for the months ahead.

There have been a number of proposals by authorities and national working groups including in the US, UK and EU to help manage an orderly wind-down of LIBOR and, in particular, provide a legislative solution for tough legacy contracts. However, market participants should continue to progress their transition efforts and plans proactively, particularly through active conversion and the insertion of robust and workable fallbacks where feasible.

Consistent with the above and emphasising the importance of action on this timetable, the administrator of LIBOR, ICE Benchmark Administration (IBA), on 18 November announced that it will consult on its intention that the euro, sterling, Swiss franc and yen LIBOR panels would cease at end-2021. Announcements in relation to US dollar LIBOR are expected to follow. In its role as regulator of IBA, the UK Financial Conduct Authority (FCA) has also set out its potential approach for use of new powers under proposed UK legislation to ensure an orderly wind down of LIBOR and published consultations on its proposed policies for using them.

FSB Official Sector Steering Group (OSSG) Co-Chairs Andrew Bailey and John C. Williams made the following statement: “The message that all market participants should take from this Report and this week’s announcements from the IBA and FCA is that we need to be prepared for the end of LIBOR. Everyone needs to be ready.

We thank all of our colleagues across the OSSG jurisdictions for their support in producing this Report, and their commitment to redouble efforts on this issue next year as we approach the culmination of many years of hard work to strengthen the global financial system.”

Notes to editors

In 2014 the FSB made recommendations to reform interbank offered rates (IBORs) in response both to cases of attempted manipulation and to the decline in liquidity in key interbank unsecured funding markets. The FSB and member authorities, through the FSB Official Sector Steering Group (OSSG) chaired by Andrew Bailey (Governor, Bank of England) and John C. Williams (President and CEO, Federal Reserve Bank of New York), are working to implement and monitor these recommendations.

The FSB OSSG will continue its work to monitor and support benchmark transition, and in particular LIBOR transition, efforts throughout 2021. This work will be complemented by the results of an FSB survey on supervisory issues related to benchmark transition, including a data collection to monitor LIBOR exposures, which will feed into a further report on LIBOR transition progress in July 2021.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.